Harnessing blockchain-based innovation into a tailor-made brokerage business model revolution

01 August 2018

We live in very exciting times for the financial industry today. The business cycle appears as strong as ever and trading across multiple asset classes is close to all-time record highs. Interest in trading foreign exchange, stocks, commodities and cryptocurrencies on part of a digitalised generation is through the roof. Meanwhile, the brokerage industry just posted a fantastic first half of 2018 in real growth terms.

Blockchain and Artificial Intelligence (AI) are promising to change the world, yet we are just starting a long road of transformation. The main theme that the vibrant boom in cryptocurrencies has shown to the tech and financial scenes is that every transformation starts with a revolution.

Bold products that make a paradigm shift in a given industry are rare to find. An innovative company called Non-Zero is about to pioneer a drastic change in the business model of the brokerage industry.

Non-Zero building a new future

While each and every one of us has had the dream of a time machine that permits a safe return to a crucial point in the history of mankind with the goal to change the future, we are not there yet. The best part of the reality that shapes us however, is that we are always able to change the present. Non-Zero’s ambition is to build a new future for the brokerage industry, but the impact will also change the past.

For years retail brokers used a business model that is akin to one used in the latter part of the 19th century. Retail broking outlets have been providing a betting opportunity to punters that are miles away from the stock market for over a hundred years. The fact of life that the majority of retail traders have been picking the wrong stocks more frequently than not, has enabled the market making model that didn’t worry retail shops into hedging their exposure.

At the dawn of the 21st century the model has evolved into a convenience for both a trader and his/her broker. The former is getting guaranteed and extremely fast execution, while the latter is able to pocket the difference when a bet turns sour.

The dynamics of the foreign exchange and CFD brokerage industry have made this model the preferred one when dealing with retail clients. Nowadays, order flow from profitable clients is sent to the main market, while the trades of the unprofitable ones are being internalized.

Unchaining the blockchain

Almost a decade after the Great Recession, in the aftermath of which the blockchain protocol has found its way into public view, the disrupting potential of this new tech is all over the news. A chance for the brokerage industry to come out stronger after the recent regulatory crackdown is now on the horizon thanks to Non-Zero.

The company, which has been developing the software quietly for the last several months, is aiming to transform the market making business model for retail foreign exchange and CFD brokers. Instead of pocketing the losses of their clients as profits, brokers will now be able to redistribute a self-determined portion of their gains back to the retail investors.

The public Ethereum blockchain used for the development of the Non-Zero platform ensures unprecedented alignment between brokerage firms and their customers. By harnessing the benefits of blockchain technology, the innovative company is pioneering a brand new approach to the retail trading landscape.

The Non-Zero platform links through an API with advanced risk-management software including one of the technological leaders in the industry, Centroid Solutions. The proprietary allocation algorithm allocates net revenues from market making to losing clients on a daily basis.

Rebuilding the reputation of the industry

The innovative approach of Non-Zero is set to change the business model of the retail brokerage industry. This comes at a crucial point in time just as financial regulators are increasingly focused on the operating practices of firms which provide financial services to retail investors. The redistribution of a sizeable portion of a broker’s gains back to clients is a transparency initiative that also could resonate well with regulatory authorities.

The experience of the retail trading industry in recent years, dictates that clear and close communication with financial regulators is the most sustainable business model there is. Non-Zero’s initiative is certain to attract the right kind of brokers to the ecosystem and continue to open up the industry for more transparency-focused companies keen in long-term growth.